Working capital is calculated by subtracting current farm liabilities from current farm assets. It is a commonly used measure of liquidity, a business’s capacity to meet short-term obligations without disrupting normal operations.
Larger farm operations generally require more working capital than smaller operations. In low-income years, farmers may draw from their working capital to pay their total business expenses. In high-income years, farmers are likely to accumulate working capital.
Between 2012 and 2020, working capital for farms of all sizes fell as farmers depleted their savings and inventories to cope with lower revenues. During that period, farms with a gross cash farm income (GCFI) of less than $100,000 saw the largest depletion of working capital, at 72 percent.
Working capital declined 50 percent for farms with a GCFI of $100,000 but less than $500,000, and it declined 33 percent for farms with a GCFI of $500,000 or more. In 2020, farms with a GCFI of $500,000 or more emerged with improved working capital, showing a 13 percent increase compared with 2019. However, working capital decreased 16 percent for farms with a GCFI of $100,000 but less than $500,000 and 25 percent for farms with less than $100,000 in 2020.
Although government payments from COVID-19 relief in 2020 appeared to have increased working capital for farms with a GCFI of $500,000 or above, levels across all farm sizes were lower for 2015-2020 compared with the 1996-2019 average level of working capital. — USDA Economic Research Service
